12-07-2016

Iron Ore Seen Sinking Back Below $50 as Top Port Sets Record

Ironore

Iron ore shipments from the world’s biggest bulk-export terminal in Australia surged to a record in June, buttressing a flurry of predictions that prices are headed back below $50 a metric ton into the year-end as stockpiles at Chinese ports expand further.

Exports from Port Hedland totaled 41.8 million metric tons from 39.4 million in May and 38.4 million a year earlier, according to data from the Pilbara Ports Authority on Monday. Cargoes to China were 34.5 million tons, also an all-time high, from 31.7 million in May and 32.6 million in June 2015.

The surge from Port Hedland adds to evidence of robust low-cost supply even as China’s steel output slows, and the increase may hurt prices that rebounded 28 percent in 2016 after three years of losses. Citigroup Inc. maintained it bearish outlook on iron ore in a note received on Monday, and Clarksons Platou Securities Inc. said further gains in output, including from Roy Hill Holdings Pty’s new mine, mean prices may be set to fall.

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“Roy Hill continues to ramp up its exports after generally being a non-factor in the first quarter,” said Jeremy Sussman, an analyst at Clarksons in New York, referring to Gina Rinehart’s project that’s getting under way this year after dispatching its inaugural cargo in December. “We expect Hedland exports to be up meaningfully in the second half.”

Benchmark Price

Ore with 62 percent content was at $55.68 a dry ton on Monday, according to Metal Bulletin Ltd. Prices swung from a low of $38.30 in December to $70.46 in April, the highest since January 2015, and posted back-to-back quarterly gains in the first half. Since March, it has dipped below $50 only three times.

Shipments from Australia have been rising as steel production in China eases. In the first half, exports of ore from Hedland were 229 million tons, 3.6 percent more than a year earlier, according to Bloomberg calculations based on port data. In China, steel output fell 1.4 percent in the first five months. Australia is the biggest iron ore exporter, while China is the largest buyer.

Ore will probably decline this quarter on strong volumes from Australia and Brazil and weak downstream demand, Citigroup said its report. Expansions at producers including Roy Hill and Anglo American Plc’s Minas Rio could put pressure on medium-term prices, the bank said.

Citi’s View

Citigroup puts iron ore at $48 this quarter, $46 in the final three months of 2016 and $42 next year. Goldman Sachs Group Inc. said in May that the commodity may be at $40 in the final three months of this year, while Morgan Stanley has forecast it at $35 in that period.

Port Hedland is a maritime gateway for low-cost supply from Australia’s Pilbara region and handles cargoes from miners including BHP Billiton Ltd., Fortescue Metals Group Ltd. and Rinehart’s Roy Hill. Shipments through the port represented 58 percent of Australia’s total iron ore exports last year.

Rising port holdings in China point to ample supplies. Inventories expanded 1.9 percent to 104.5 million tons last week, the highest since December 2014, according to Shanghai Steelhome Information Technology Co. That’s the fourth weekly increase in a row, and the biggest gain since the week to April 1.

“We expect a continued ramp-up in supply to put downward pressure on iron prices in coming quarters,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc in Sydney. “We expect iron prices to fall back below $50 a ton in the second half.”

Source: Bloomberg

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